• More than $2 trillion in assets are involved in social investing using one or more of the three core socially responsible investing strategies – screening, shareholder advocacy and community investing.
  
  
• The use of environmental, social and governance factors in investment decision-making – long a staple of SRI – is rapidly gaining adherents in the larger investment world.
  
  
• Major investing institutions involved in social investing include pension funds, mutual fund families, foundations, religious organizations and community development financial institutions.

Socially responsible investment (SRI) is a growing field, with increasing attention being paid to the practice and how it relates to corporate citizenship, governance and disclosure.

The Institute for Responsible Investment (IRI) was formed in 2003 as a project of The Center for Corporate Citizenship at Boston College. It was in part the brainchild of Steve Lydenberg, who has been active in social investing for over 25 years and was instrumental in the creation and maintenance of the Domini 400 Social Index, the first socially and environmentally screened equity index in the United States. A cofounder of the corporate social research firm KLD Research & Analytics, Steve is now chief investment officer at socially responsible investment firm Domini Social Investments.

The IRI provides a platform for dialogue among financial professionals, corporate practitioners, academics, unions, public interest organizations and public sector employees on fundamental issues and theories underlying responsible investment and corporate citizenship. The IRI promotes this dialogue to encourage practical actions, research and on-going working groups in these areas.

Each year the IRI sponsors at least two convenings for key players in the financial, corporate, academic, union and public sector fields. These small gatherings of 30-40 people promote the sharing of research, exchange of ideas and formulation of strategies for action. The most recent convening on November 8 focused on “Building the Infrastructure of Responsible Investment.” Participants discussed how best to broaden the impact of responsible investing through the growth of institutions that research key environmental, social and governance questions.

We spoke with David Wood, Senior Research Associate at the IRI, to learn more about this group and its work.

Q. Why was the IRI formed?

Wood: SRI had its roots in the 1970s with the creation of socially and environmentally screened funds and the emergence of shareholder activism on issues of immediate social concerns. The field has grown rapidly since then. Today the agenda of SRI issues is constantly changing as the market develops and as our concepts of sustainability and responsibility evolve. As the insights of SRI are being incorporated into the mainstream – and sometimes challenged by the mainstream – there is a sense of a transitional moment in capital markets.

We believe the field of responsible investment is poised to change dramatically, and wield substantial influence, as the markets make their transition. To date, however, responsible investment has grown faster than its infrastructure, leaving much work to be done, for instance, at the level of theory building. Steve Lydenberg’s new book, Corporations and the Public Interest, in some ways frames the IRI’s work as a “think tank” meant to coordinate thought leadership and action around responsible investment. In it, he talks about the ways in which capital markets, in conjunction with corporations and government, can focus on economic growth that creates long-term societal wealth.

The IRI is looking to amplify and augment the voice of responsible investors in debates about investment. Our goal is to expand the practice of responsible investment by further developing and popularizing the theories that underlie the discipline. We believe that the values behind SRI are powerful, but not as well known as they should be. SRI has the power to shape how companies and markets generate long-term societal wealth. Our hope is to draw attention to this power, and to expand SRI's presence from its current primary focus in equities and to some extent community investment, to other asset classes, such as, for instance, real estate and small and medium-sized enterprises (SMEs).

Q. How does SRI relate to corporate citizenship?

Wood: Just as the field of corporate citizenship is undergoing a moment of great change, so is the investment community. To some extent, these are parallel movements, both with potential to bring about real change in how corporations behave.
 
Many companies who want to be seen as good corporate citizens want the recognition that goes with being chosen by leading SRI investors. These companies want to be included in the major indices such as the Domini Social Index, FTSE for Good, or the Dow Jones Sustainability Index.

The mainstream investment community has begun to adopt SRI strategies that focus on the environmental and social impacts of companies. This in turn is moving companies to adopt higher corporate social responsibility standards as a way of managing risk and identifying ways to enhance future performance.

As SRI dollars become a larger share of the investment pool, corporations' investor relations’ efforts take on new dimensions. Not only is institutional SRI becoming a more coherent body to deal with, but some of the techniques SRI investors employ – such as applying environmental or social or governance criteria in their investment decisions – are being adopted by mainstream institutional investors. And SRI investors tend to be actively engaged shareholders who take the duties of ownership seriously. So companies have more at stake in terms of how this is being played out in their investor relations.

Q. How will SRI affect corporate citizenship in the long term?

Wood: Companies are particularly interested in SRI because of its potential to change long term investment strategies. CEOs and CFOs often complain that they'd love to take a long-term strategy toward corporate citizenship in their businesses, but because investors focus so much on short-term quarterly results, long-term strategies that would be beneficial to corporations and society as a whole are inhibited. The IRI is interested in pursuing practical steps of defining what long-term investment is and to break the cycle of short-termism. We are trying to facilitate corporate investor dialogue about long-term goals, which ultimately will be better for investors, and for the world.

Additional Resources:

• The IRI has published Knowing the price, but also the value?: Financial analysts on social, ethical and environmental information in partnership with PriceWaterhouseCoopers and Nyenrode Business University (Netherlands). This study examines how, and to what extent, mainstream analysts consider social, environmental and ethical information important to their work. Interviews were held with financial analysts from houses such as Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Deutsche Bank, BNP Paribas, and UBS, among others.

• Learn more about the Institute for Responsible Investment